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View from practice: Stock market reaction to sukuk credit rating changes in Malaysia
Author(s) -
Muhamad Sori Zulkarnain,
Mohamad Shamsher,
Al Homsi Mahmoud
Publication year - 2019
Publication title -
thunderbird international business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.553
H-Index - 37
eISSN - 1520-6874
pISSN - 1096-4762
DOI - 10.1002/tie.22066
Subject(s) - sukuk , credit rating , bond credit rating , downgrade , credit enhancement , bond , business , financial system , stock market , economics , capital market , bond market , finance , credit risk , credit reference , islam , islamic finance , paleontology , philosophy , theology , computer security , horse , computer science , biology
Documented evidence on conventional bond markets shows negative market reaction to bond credit rating downgrade and no reaction to credit rating upgrade. Despite the fact that sukuk issuances make up more than 58.8% of the value of outstanding bonds in the country and Malaysia issues at least half of the world's sukuk and is widely recognized as a leader in the sukuk space, there is no documented evidence on the stock market reaction to sukuk credit rating changes. This study analyzed the wealth effect of sukuk credit rating changes in Malaysia using 16 sukuk upgrades and 20 sukuk downgrades for the period 2000–2014. The evidence shows negative market reaction to downgrades and positive significant reaction to sukuk rating upgrade. This symmetrical market reaction to sukuk credit rating changes implies the market was indifferent between bonds and sukuk from the credit rating perspective. This finding supports the notion that the credit rating agencies are Shariah‐neutral when rating these capital market instruments.